A provocative, unsponsored assessment of current and future legal, regulatory, marketplace, and cultural issues affecting telecommunications and information policy presented by Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law, Penn State University

Wednesday, February 11, 2009

Does anyone remember how Worldcom, Qwest, 360 Communications and other telecommunications carriers overstated revenues by booking capacity swaps as current income? Like their Enron counterparts, telecom managers came to understand that there was more bonus money and stock appreciation in creating esoteric capacity swaps then in stimulating demand through enhanced service.

History repeats itself as though we learned nothing from previous frauds. It appears that little difference exists between a creative financial “instrument” that repackages real estate debt and one that repackages telecommunications capacity swaps. The underlying financial transaction—to fund a telecommunications transmission facility such as an overseas fiber optic cable, or to fund home purchases—becomes a long embedded element to a more recent repackaged or re-sliced financial instrument. With such repackaging ventures can prime their financial pumps and profit statements by recycling and reselling.

To my mind little difference exists between the false stimulus of buying, repackaging and reselling real estate debt and telecommunications transmission capacity debt. With each reprocessing of the properties, processors can expand the debt load based on the artificial increase in apparent demand for the financial instruments, never mind that demand for the underlying property may not have changed, or may have been goosed upward on fraudulent grounds.

The non-lesson: if smart people can artificially inflate demand for telecommunications transmission capacity and debt instruments, the same or similarly smart people can do the same thing for real estate.

Monday, February 9, 2009

News of a slimmed down Amazon Kindle electronic book has triggered this question: what regulatory status applies to devices that use wireless capacity purchased by the appliance vendor and bundled into the cost of both the appliance and downloads? In the United States the FCC has exempted bundlers of telecommunications capacity on grounds that they do not retail a telecommunications service.

But in light of the willingness of the FCC and other national regulatory agencies to oversee some times of information services, might network neutrality and other concepts of nondiscrimination apply? Bear in mind that Kindle buyers apparently do not receive a subsidy that reduces the cost of the information appliance in exchange for locking out competing content and applications. Still the FCC has shown no interest in forcing wireless carriers or manufacturers to comply with the so-called Carterfone nondiscrimination requirements applicable to wireline handsets and carriers. Carterfone requires carriers to interconnect with other carriers and to accept subscriber chosen and loaded applications.

Apple makes great self-congratulatory statements about the wide and open applications available for downloading, but note that the FCC does not require at&t to accept any non-Apple approved and marketed applications, nor does the Commission prohibit Apple from blocking and disabling applications that it unilaterally decides subscribers should not use. So if the FCC could not be bothered with wireless common carriers operating in a discriminatory manner then the Commission probably will have no concerns about a "locked down" Kindle. In light of the Supreme Court's deference to the FCC's "expertise" in the Brand X decision, it appears that the FCC could ignore information appliance discrimination entirely.

About Me

Rob Frieden serves as Pioneers Chair and Professor of Telecommunications and Law at Penn State University.He also provides legal, management and market forecasting consultancy services and has written four books, most recently Winning the Silicon Sweepstakes: Can the United States Compete in Global Telecommunications published by Yale University Press. Rob has written over one hundred articles in law reviews and telecommunications policy journals and has provided commentary in a variety of trade periodicals. He updates a major communications treatise: All About Cable and Broadband (Law Journal Press).

Rob has held senior policy making positions in international telecommunications at the United States Federal Communications Commission and the National Telecommunications and Information Administration.In the private sector, he practiced law in Washington, D.C., and served as Assistant General Counsel at PTAT System, Inc. where he handled corporate, transactional and regulatory issues for the nation's first private undersea fiber optic cable company. Professor Frieden holds a B.A., with distinction, from the University of Pennsylvania (1977) and a J.D. from the University of Virginia (1980).